You are required to prepare a report of 2500 words to
the Finance Director (William Money) to address concerns raised at the recent
Board Meeting for the Directors of the SlowNourish plc supermarket chain (SN).
Background:
SN is a large supermarket based in the UK. The company
operates mainly in Europe and the UK. About 60% of its purchases are paid for
in dollars and sales are mainly in euros and pounds. Profit margins for SN are
low at 3% with average shelf life or stock turnover of about 7 days for perishable
foods and 1 month for longer life provisions.
The concerns were as follows:
1) Mr Brick the Estates Director remarked that he thought
the IMF was supposed to ensure that the exchange rate did not move greatly. The
purchasing Director Mr Cheap thought that the IMF could not do this in the case
of the dollar as its balance of payments on the current account was so poor.
The legal secretary Mrs Innocent thought that the other Directors were making
too much of the problem observing that the price of the dollar did on occasion
go up but that it also went down and that on balance there was no effect. The
Finance Director promised some notes on the international management of the
dollar exchange rate, the recent behaviour of the dollar and what it meant for
SN.
(33
marks)
2) The Marketing Director (Mr Selby) announced that SN
has been invited tender for an investment in India where they are experiencing
difficulties in getting goods from farm to market. However, he admits to not
knowing a great deal about the issues and problems of investing in a developing
country. The Board expresses particular concern as to the financial
implications of such an investment
(33 marks)
3)
Finally, Mr
Money notes that the value of the dollar has behaved as follows: the
euro as follows: He observes
that: “they are both on the decline so we should definitely be buying more from
the US and perhaps cutting back on our sales in euros”. The Purchasing Director
laughs and says “These graphs tell you nothing about the future value of these
currencies.”
(34
marks)
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